In brief

The Croatian Democratic Union (HDZ)-led coalition government is unlikely to last its full term until 2020 but will remain in power in the medium term. Croatia significantly narrowed its fiscal deficit in 2015-16 and has exited the EU's excessive-deficit procedure. The record performance of the tourism sector, stronger domestic and external demand, and improved absorption of EU funds have improved Croatia's growth outlook. We forecast real GDP growth of 2.7% on average in 2019-23.